Polyethylene Catalyst Expansion At Kansas City Site Will Support Increased Demand By 2026

Key Takeaways

• Focus on emerging technologies and strategic partnerships is anticipated to strengthen market position and contribute to sales growth, impacting revenue and earnings.
  
• Capacity expansions and recovery in key markets are expected to drive sales and improve margins, enhancing long-term revenue growth.
  
• Uncertain global conditions and strategic challenges could pressure Ecovyst's revenue and earnings, with impacts from maintenance, joint venture issues, and excess production capacity.

Catalysts

Offers specialty catalysts and services in the United States and internationally.

• Capacity expansion projects, such as the polyethylene catalyst expansion at the Kansas City site, are expected to support increased customer demand by 2026 and 2027, potentially driving revenue growth.
  
• The company’s focus on emerging technologies, including advanced recycling, biocatalysis, and carbon capture, is anticipated to strengthen its market position and contribute to future sales growth, impacting both revenue and earnings.
  
• The strategic partnership with ChiralVision is expected to enhance Ecovyst’s product offerings in enzyme and immobilization applications, potentially improving revenue and net margins in the long term due to high demand in the biocatalysis market.
  
• The completion of turnaround activities and anticipated higher virgin sulfuric acid demand in the second half of 2025 are expected to lead to increased sales and improved net margins due to optimized operations.
  
• Expected recovery in renewable diesel production and sustainable aviation fuel markets over the next 12 to 18 months could enhance Ecovyst’s sales for catalysts, potentially increasing both revenue and earnings.

Ecovyst Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ecovyst's revenue will grow by 6.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.9% today to 11.2% in 3 years time.
• Analysts expect earnings to reach $95.0 million (and earnings per share of $0.96) by about March 2028, up from $-6.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.8x on those 2028 earnings, up from -118.0x today. This future PE is lower than the current PE for the US Chemicals industry at 21.2x.
• Analysts expect the number of shares outstanding to grow by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.16%, as per the Simply Wall St company report.

Ecovyst Future Earnings Per Share Growth

Risks

• The ongoing uncertainty in the global macroeconomic environment and potential geopolitical disruptions, such as tariffs, could negatively impact overall demand and sales volume, pressuring Ecovyst's future revenue and earnings.
  
• The first quarter of 2025 is projected to be particularly weak due to scheduled turnarounds and maintenance activities, leading to lower volumes and fixed cost absorption issues, which could adversely affect earnings.
  
• The Zeolyst joint venture faced lower sales due to the timing of hydrocracking catalyst orders and decreased demand for catalyst materials used in emission control applications, leading to a $65 million noncash impairment charge that has impacted net earnings.
  
• The global outlook for polyethylene demand remains subdued, compounded by excess production capacity in Asia, which may limit revenue growth from advanced silicas used in polyethylene production.
  
• Questions remain about the strategic review of the Advanced Materials and Catalysts business, with potential impacts on revenue and net margins if changes in business structure or focus lead to uncertainties or disruptive transitions.

Valuation

• The analysts have a consensus price target of $9.786 for Ecovyst based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.0, and the most bearish reporting a price target of just $8.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $851.9 million, earnings will come to $95.0 million, and it would be trading on a PE ratio of 15.8x, assuming you use a discount rate of 9.2%.
• Given the current share price of $6.69, the analyst price target of $9.79 is 31.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.